Multiple factors drive housing costs

The ongoing shortage of homes for sale continues to push up prices. construction generic housing boom portland_306253

PORTLAND, Ore. (PORTLAND TRIBUNE) — A confluence of factors – including low supply, high demand, obstructive regulations and lacking infrastructure – is driving up housing prices in the state, a panel of state economists and housing experts told a legislative committee Tuesday.

“There are too few units given the strong and growing demand,” said Josh Lehner, economist with the Oregon Office of Economic Analysis. “In such a market, anything available at a remotely reasonable price and/or location is gone instantaneously. The lack of supply drives prices higher.”

Panelists recommended a series of policy changes, many of which lay outside the Legislature’s control. Local zoning laws, permitting rules and even the state labor commissioner’s interpretation of prevailing wage law for residential construction projects can drive up the cost and time it takes to build units, said Kurt Creager, director of Portland Housing Bureau.

“Who moves to Oregon? The short answer is everyone moves to Oregon,” Lehner said.

In the past year, the state has attracted more newcomers than it had any year in the past two decades. About 30 new households move to the state or are formed in the state every day.

Meanwhile, the state’s stock of affordable housing has failed to keep pace. Portland is a year behind in building new units to keep up with population growth. The city needed 23,000 more units than were built between 2006 and 2015. That combination has yielded the fifth lowest vacancy rate among the 100 largest metro areas in the nation, Lehner said.

The economist said he doesn’t know why the city lagged behind in building units.

“Coming out of the Great Recession, I know financing was very, very hard for builders to obtain,” Lehner said. “Some analysts like to point out that demand increases much faster than supply can, given how long it takes to build housing.”

New construction doesn’t necessarily equate to affordable housing. Much of the new construction is more expensive than existing housing, said Mike Wilkerson, senior economist with ECONorthwest.

The median monthly rent in Portland is $1,200. In order to afford that, you’ll need to earn 113 percent of median income, Wilkerson said. If the unit was built after 2007, that price climbs to $1,750. Nearly 54 percent of Portland renters are paying at least 30 percent of their income toward rent, according to Lehner’s analysis of census figures.

Increased demand for construction work has driven up the bids contractors make on projects by up to 20 percent, Wilkerson said.

The state labor commissioner’s rulings on prevailing wage also can drive up building costs, Creager said. One is example is the Yards at Union Station, a 1,200-unit development built in five phases in downtown Portland. For the first two phases, the Yards at Union Station developers were required to pay the residential wage to workers on the project. After Labor Commissioner Brad Avakian took office, he ruled the final three stages – which were identical to the first – demanded a commercial wage, because 20 percent of the development had commercial features. The other 80 percent of the project was residential. That decision drove up labor costs for the project by 25 percent., Creager said. A solution to help reign in those labor costs is to apply a split wage rate to such projects, he said.

Local zoning laws limit where developers can build multifamily units, and there are few areas where building multifamily units is viable because of the high cost of installing infrastructure, Wilkerson said.

Panelists recommended easing limits on density and prohibitions on duplexes, triplexes and garden style apartments in single-family neighborhoods. Decreasing restrictions on construction of condos and prefabricated and modular homes also could help increase affordable housing capacity. Secondly, Wilkerson said, low-income housing credits need to be targeted geographically where the greatest need is, which is not happening now.

Creager of the Portland Housing Bureau said even something as simple as including cost control into the charge of a city’s design review commission might help remove obstacles for developers.

The panelists presented Tuesday to lawmakers on the House Committee on Human Services and Housing. Lawmakers had requested the information to help give them more insight on the drivers of the state’s housing crisis and ideas for proposed legislation in 2017 to improve the situation, said committee Chairwoman Rep. Alyssa Keny-Guyer, D-Portland.

Gov. Kate Brown has said augmenting the state’s affordable housing supply is one of her priorities, but it is unclear how much the Legislature can do to ease the crisis, given the market drivers.

“Housing is fundamentally a matter our society has consigned to the private sector, and government at all levels really only tinkers on the margins of that sector,” said Margaret Van Vliet, director of Oregon Housing and Community Services

Last session, lawmakers passed legislation to end the state’s 17-year ban on requiring developers to include affordable housing in their plans, a measure to prohibit rent increases in the first year of a month-to-month tenancy and increase notice for rent increases from 30 to 90 days, a pilot affordable housing program for smaller communities and a measure to allow annexations without going to the people for a vote. The Legislature also poured millions of dollars into emergency and homeless housing assistance, foreclosure counseling and other programs designed to keep people in their homes.The Portland Tribune is a KOIN media partner.

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